Children are expensive. It has been estimated that one child will cost you between $380,000 & 550,000 to raise (excluding private school fees) and the cost of education has increased by 70% over the last 10 years. These figures mean it’s more and more important to plan how you will fund your child’s education.
There are lots of different strategies to do this (and, as always, we recommend you see a financial planner to discuss what the best option is for you). The most important thing is to make a plan early and stick to it. You should also incorporate the funding into an overall financial strategy and make sure your plan has some flexibility as your situation is likely to change.
“…one child will cost you between
$380,000 & 550,000
Here are some popular strategies that have worked for our clients in the past:
Pay off Mortgage & Redraw
It’s always good to pay off personal (non-tax deductable) debt as quickly as possible. If you set up your loan with a redraw facility or offset account you can make additional repayments on your loan, reducing the interest you pay. You can then access that money for your children’s education when you need it in the future.
An insurance bond is a tax-paid investment which means if the bond is held for longer than 10 years, the final payout is tax free. The advantage of insurance bonds is that they can be held in trust by a parent or grandparent. If the bond is redeemed early assessable income will be attributed to the parent/grandparent. Because saving for children are taxed at high rates, holding the bond in trust will save on income tax.
Pass On Your Inheritance
If you are expecting an inheritance it’s a good idea to see a financial planner as you will often pay significant tax. One way to deal with this is to pass on your inheritance to your children. The inheritance can be held in trust by the parent or placed into a testamentary trust. The parents don’t incure tax on income or assets, and it can be possible to pay a tax effective income stream to the child.
These are only a few of the many strategies you can use. If you would like help finding the best strategy for you please don’t hesitate to contact us.
The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.